Reporting Unethical Behavior in the Workplace: How Compliance Leaders Can Avoid Costly Escalations

Imagine waking up to discover your organization is under investigation for Medicare fraud. The Office of Inspector General (OIG) suspects a years-long conspiracy. Now you’re facing legal costs, civil penalties, and program exclusions. As emails fly and missed calls are triaged, one thought lingers:

“How did nobody see this coming?”

Serious violations usually start with small ethical breaches. Left unaddressed, these seemingly minor issues can be problematic, but can be identified and resolved swiftly and effectively—and without the need for external investigations or costly settlements.

This article explores why organizations so often fail to address unethical behavior in this way. 

You can expect to learn:

• Why fewer than half of employees report ethical violations they’ve seen.
• How proactive reporting measures can save time, money, and serious harm.
• What you can do to encourage employees to report violations as soon as they notice them.

Why Employees Stay Silent: The Hidden Costs of Reporting Barriers

Anonymized surveys find that 23 percent of employees have personally seen or have first-hand knowledge of their colleagues or managers behaving unethically. Yet relatively few raise the alarm. Are employees simply turning a blind eye?

The evidence suggests not: employees who observe unethical behavior are more than twice as likely to be actively disengaged at work and experience burnout. Clearly, these violations have a serious impact; workers simply don’t feel safe reporting what they’ve seen.

Our experts have worked within a wide range of organizations and cite four primary factors that prevent employees from reporting:

1. Fear of Retaliation: Employees consistently report that they fear punishment—directly or indirectly—if they speak out. Recent studies show that 43 percent of employees fear retaliation if they report compliance concerns.
2. Lack of Clarity: Many employees are also unsure exactly what is considered unethical behavior in the workplace. A colleague’s behavior might violate their personal ethics, but if they’re not confident that it is an actual violation, reporting might not feel worth the risk.
3. Distrust in the Process: Employees often lack faith that their reports will be taken seriously or lead to material action. Given the perceived risk of reporting, even a small doubt can make sharing what they’ve seen feel pointless. This potential trust barrier illustrates the value of a culture of compliance.
4. Personal Proximity: Employees are most likely to observe unethical behavior in people they work closely with. But this can create a personal dilemma: do they want to report someone they might have a friendship or personal connection with?

These are not just psychological obstacles. They are structural barriers that make reporting feel impossible. Small issues turn into major liabilities; engaged employees become disillusioned and unengaged; and unethical behavior goes unchecked.

Fortunately, these are also factors that can be influenced by top-down policy decisions—and leaders stand to benefit greatly from shifting from reactive to proactive responses.

Early Reporting as Risk Mitigation: Protecting People, Reputation, and the Business

When an employee notices something unusual in Medicare billing, it can cause serious stress. In some cases, it may signal the early stages of a major False Claims Act (FCA) violation. However, when identified quickly, the potential for lawsuits, public scandal, and—most importantly—patient harm can be mitigated.

Early reporting is particularly powerful because it combats the root cause of most compliance violations. Unethical workplace behavior tends to “snowball.” A relatively small transgression sets a precedent for more flagrant violations. 

Most individuals are not criminal masterminds. All it takes is a momentary lapse in judgment for an individual to find themselves ethically compromised. Rather than reporting themselves, they double-down. Within a few months, a relatively small disciplinary issue has become a major compliance problem.

Our team manages 24/7 compliance hotlines and we routinely see how early reporting can:

• Generate Savings: Organizations avoid investigations, legal fees, and potential settlements that could easily have reached beyond the seven-figure mark.
• Protect Individuals: From the potential victims of Medicare fraud to employees who might get caught up in the violation, early reporting ensures unethical behavior doesn’t “snowball.”
• Preserve Reputations: The net impact of transparent reporting can improve employee morale and even public perception, creating a culture that actually embodies the ethical values it outwardly champions.

These are not speculative benefits; they are proven, concrete realities. But they raise a question: how can leaders ensure unethical behavior gets reported—and ideally prevented?

The Compliance Leader’s Role: From Rule Enforcer to Culture Shaper

Research from the University of Cambridge shows that leadership can create an “ethical mindset” in employees through behavioral alignment. Explicit messages (such as official policy) must match implicit messages (such as leadership action) to build credibility and trust.

This is relatively simple; you might not need a Cambridge professor to spell it out. The important takeaway is that many organizations fail to achieve this alignment. They often lean on explicit policies without ensuring the organization backs them up with clear, visible action to promote ethical conduct.

Compliance reporting offers a powerful example. Many leaders assume that introducing a compliance hotline demonstrates their commitment to ethical conduct. After all, why else would they swallow the cost of a reporting system if they didn’t value integrity?

But there are several hidden barriers here:

• Hotlines are often run internally, which does nothing to assuage employees’ fears about retaliation.
• Language barriers and limited hotline operating hours often send the subtle message that some reports are not valued.
• The hotline is often underpromoted, inadvertently suggesting that leadership is not heavily invested in encouraging its use.

These are all solvable problems, but leaders must ensure their compliance policies and reporting mechanisms truly demonstrate the values they’re designed to signal. 

Four Practical Levers Compliance Leaders Control to Encourage Early Reporting

Our compliance hotline experts identify four steps that can dramatically improve most reporting systems:

1. Create Multiple, Anonymous Reporting Channels

A single hotline sends a clear message: we’ve checked the compliance box. Multiple channels show that leadership genuinely wants to hear from employees. Individuals also have different comfort levels and constraints. Some won’t call during work hours, others need the psychological safety of written communication, and many simply won’t trust an internally managed system.

Make reporting genuinely accessible:

• Offer web forms, mobile apps, third-party hotlines, and confidential in-person options so employees can choose the method that feels safest to them.
• Ensure 24/7 availability across time zones and languages, particularly if you operate globally or employ shift workers.
• Use independent third-party services to handle sensitive reports, removing the perception that HR or management controls visibility.
• Promote every channel visibly and repeatedly so employees know exactly where to turn when they see something wrong.

2. Communicate Reporting Processes Clearly and Repeatedly

In many organizations, employees have spent years with only vague awareness that a compliance hotline exists—but almost no understanding about how it works. That is powerful inertia; you are up against an entrenched culture, which means you must go further than might feel “normal” to promote the reporting mechanism.

Remove uncertainty from the reporting equation:

• Define what is reportable using concrete examples, not vague statements about “doing the right thing.”
• Advertise your hotline everywhere employees already look: onboarding materials, annual training, breakroom posters, intranet homepages, and email signatures.
• Share case studies or data showing how past reports led to meaningful change, making the abstract concept of “reporting works” tangibly real.
• Repeat the message quarterly at a minimum. One email per year guarantees your reporting system will be forgotten when it is needed most.

3. Train Employees to Recognize and Respond to Concerns

Most employees won’t go straight to a hotline. Instead, they “sense check” their concern to a colleague or manager first. If that individual dismisses the concern, minimizes it, or—worse—retaliates, you’ve just taught an entire team never to speak up again.

Equip employees to handle sensitive conversations:

• Train your employees to listen without defensiveness or immediate problem-solving, creating space for employees to share what they’ve observed without fear of judgment.
• Teach escalation protocols clearly so managers know exactly when to loop in HR, legal, or compliance—and understand that escalation is not a failure but a responsibility.
• Reinforce confidentiality protections and help managers understand that even well-intentioned “I’ll handle this quietly” approaches can feel like cover-ups to the reporting employee.

4. Demonstrate Consistent Follow-Through and Accountability

Nothing undermines future reporting faster than the perception that concerns disappear into a void. Employees need to see that their courage to speak up matters. Close the loop, show your work, and prove that the reporting system is not theater.

Make accountability visible:

• Acknowledge every report within 24-48 hours, even if a full investigation takes weeks. Prompt acknowledgement signals seriousness. 
• Share outcomes in aggregated quarterly updates that show categories of reports received, general findings, and organizational changes made without compromising individual confidentiality.
• Publicize policy changes that resulted directly from employee reports, explicitly crediting the reporting system for identifying the gap.
• Hold leaders accountable when investigations reveal wrongdoing, especially at senior levels—selective enforcement destroys credibility faster than no enforcement at all.
• Track and publish your organization’s non-retaliation record, showing employees that people who report don’t face career consequences, while those who retaliate do.

Empower Your Employees to Report Unethical Behavior

Compliance Resource Center has spent over 15 years helping organizations build stronger compliance cultures. Our 24/7 compliance and ethics hotline services are built around three decades of industry expertise to:

• Create the psychological safety required for widespread adoption.
• Streamline service delivery to escalate complaints faster.
• Reduce the burden for your internal compliance team.

Want to address ethical violations before they turn into major problems?

Book Your Consultation 

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